My Town

Onetime social media darling Digg reportedly sold for a paltry $500,000

By Patrick May and Peter Delevett Mercury News

Posted:
07/13/2012 06:52:40 AM PDT

Updated:
07/13/2012 06:53:05 AM PDT

In a remarkable Silicon Valley rags-to-riches-to-rags saga, the onetime social media darling Digg was sold Thursday for a reported $500,000, an embarrassingly paltry sum given that Internet rock star Kevin Rose's company had raised a total of $45 million in venture funding and was once valued at more than four times that amount.

Digg's fall was spectacular in both its steep pitch and cultural resonance, serving up a sobering reminder that a valley superstar can turn into a shadow of itself in a relative heartbeat. The collapse is even more startling because Digg was center-stage as the era of social media was launched. Digg, a social news site that let people "vote'' online stories up or down and share them with others, was once called ''the new New York Times."

The sale to New York tech incubator Betaworks came after the majority of Digg's engineering staff left in May for Social Code, a subsidiary of The Washington Post Co.

"Over the last few months, we've considered many options of where Digg could go, and frankly many of them could not live up to the reason Digg was invented in the first place -- to discover the best stuff on the Web," Digg CEO Matt Williams said in a blog post. "We wanted to find a way to take Digg back to its startup roots."

Digg's website will continue to exist, and Betaworks will soon launch a new "cloud-based version of Digg" to complement its current offerings, Williams wrote.

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Launched in 2004 by then 27-year-old Rose, San Francisco-based Digg rose to prominence as an aggregator of online news and other content, becoming at one point one of the more highly-trafficked stops on the Internet. The site let users endorse -- or "Digg" -- links, an early precursor to how Facebook and Twitter help spread "viral" content today.

The company raised a total of $45 million in funding from established venture capital firms like Greylock Partners. At one point, Google (GOOG) was reportedly considering buying Digg for $200 million. And in 2006, Rose starred on a widely circulated BusinessWeek magazine cover, flashing his thumbs next to the headline: "How This Kid Made $60 Million In 18 Months."

Digg struggled over the past few years, thanks to turnover among top management, user-generated problems such as some heavy users dominating the site with their submissions, and growing competition from newer and flashier websites like Twitter.

In September 2010, Williams took over as CEO, ending Rose's troubled tenure as interim chief executive as the company grappled with technical snafus and disgruntled users. Last March, Rose went to work at Google, and later became a venture partner at Google Ventures.

Rose could not be reached for comment Thursday. But late Thursday on the Digg website, he praised Betaworks founder John Borthwick, saying "John understands the real-time nature of the Web and how to capture and surface trends as they occur." Saluting Borthwick's work with several other startups, Rose said, "I can't wait to see what he does with Digg."

The 2006 BusinessWeek story documented the front end of the fateful arc of Digg from initial red-hot success to looming failure. "Digg is emblematic of the ethos of Web 2.0, new consumer and media sites revolving around social networking and do-it-yourself services," wrote authors Sarah Lacy and Jessi Hempel. "Others include YouTube, which serves up some 100 million requested videos a day, rivaling the audience of NBC. Then there's Facebook, where the college crowd practically lives.

"Some even refer to Digg as the new New York Times," they wrote. "News sites are discovering they can benefit too: Get a story on Digg's front page, and in comes a flood of traffic from people clicking on the link to read the story on your site. So far, Digg is breaking even on an estimated $3 million annually in revenues. Nonetheless, people in the know say Digg is easily worth $200 million."

Adam Kalsey, a blogger and serial tech entrepreneur in Sacramento, was among those tweeting scoldingly Thursday about Digg's demise. He chided Rose for turning down Google's reported mega-offer and said the company's fate is a warning for other social media startups.

"You don't create a community and try to control it," Kalsey said in an interview. "They made a bunch of changes, there was a user revolt and the base dropped off."

Digg's monthly traffic, which topped 14 million unique visits in January 2010, had plunged to fewer than 9 million a few months later after Rose forced through unpopular changes to the site, according to data at the time from comScore Media Metrix.

The reported sale price -- less than the median price of a Silicon Valley house -- doubtless comes as an embarrassment to Digg's backers, who include top-flight investors such as Ron Conway and Marc Andreessen. But Kalsey quipped, "You've got to figure at this point, any VC was just looking for a way out. Investors would rather have a dud than a zombie."

Contact Patrick May at 408-920-5689 or follow him at Twitter.com/patmaymerc.